Defence Firm Bharat Electronics Order Book To Exceed Guidance; Should You Buy Dividend Paying Stock?

Defence giant Bharat Electronics (BEL) has hit back-to-back new 52-week highs in the past few days, and the latest new peak level was of Rs 174.35 apiece on December 18th. Investors are optimistic dividend paying BEL after the company won huge order deals including the recent win of a Rs 5,336.25 crore contract under the 'Aatmanirbhar Bharat' vision for ammunition procurement under 'Manufacture of Ammunition for Indian Army

On BSE, the stock touched a new 52-week high of Rs 174.35 apiece after market hours on Monday.

The company said it received an order of Rs 4522 Crore from the Indian Army for the supply of Fuses of various calibres. Also, the company signed a landmark contract with the Defence Ministry last week for the procurement of Electronic Fuzes for the Indian Army for 10 years, at a total cost of Rs 5,336.25 crore on December 15th.

That being said, BEL has cumulatively received orders worth Rs 23176 crore (excl. taxes) in the current financial year 2023-24.

This Navratna Defence PSU is among the top dividend-paying stocks in the sector. It has declared a total of 180% dividends aggregating to Rs 1.8 per share for FY23. The dividend was announced in series of Rs 0.6 each or 60% in January, March, and May.

According to Elara Capital, BEL has received several order inflows aggregating Rs 87.9 billion in Q3FY24 to date. Until FY24 YTD, cumulative order inflows stood at Rs 231.7 billion vs guidance of Rs 200 billion in FY24, 16% ahead of the target. Considering the past year's order inflows, it said, "We believe there has been a sizeable rise in short-cycle orders toward radars, avionics, electronics warfare system, annual maintenance contracts for radars & other equipment, and spares & services."

Also, Elara expects BEL's order inflows to rise Rs 300 billion in FY24E, the highest-ever with a further short-to-medium order pipeline of Rs 40-45 billion. Thus, order inflows are likely to be 50% ahead of guidance in FY24. Order pipeline includes electronics from the ship-building segment worth Rs 20-25 billion and radars worth Rs 20 billion.

However, few shocks will be seen in revenue growth due to geopolitical tension in the Middle East. Elara's note said, "Management has revised down revenue growth target to 15% in FY24 from 17% on account of the ongoing Israel-Hamas war, which is likely to delay delivery of components in the missiles program, representing 3-4% of BHE order book of Rs 687 billion as on September 2023."

On the valuation, Elara's note said, "We lower our FY24E EPS by 0.5% on a cut in revenue growth but raise FY25E EPS by 6% and FY26E EPS by 8% on strong inflows and higher other income. We raise our TP by 19% to Rs 185 on 27x (from 25x) FY25E P/E, as we roll forward to December. During FY16-18, BHE saw inflow momentum at a 20% CAGR; consequently, revenue growth momentum too jumped to 15% from 12%."

It added, "We believe there has been a significant rise in inflow momentum, thereby resulting in stronger earnings growth. We reiterate Accumulate, led by India's indigenization story in the defence space. We expect an earnings CAGR of 31% during FY23-26E with an ROE and ROCE of 25% each during FY24-26E."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.